United were outclassed in a 1-0 defeat to Juventus in the Champions League on Wednesday, demonstrating that Jose Mourinho's side are a long way off from Europe's elite.
The Reds are also nine points behind joint-leaders Man City and Liverpool in the Premier League, a tally Neville does not see his former club making up - while also writing off their European chances.
"There was a huge gulf in class between the two sides - United are 10th in the Premier League for a reason, while Juve are one of the best teams in Europe and have got everything you need to be successful.
"Getting fourth place has to be their focus now because they are not going to win the Premier League or the Champions League, and they need to concentrate on getting back into it next season."
Neville, who is currently the England women's national team manager, has refrained from calling for the under-fire Mourinho to be sacked, and is still convinced the Portuguese should remain in charge after Tuesday's defeat.
"Mourinho is still getting criticism himself of course, but I said before the game I think United should stick with him, and this defeat does not change that.
"United have now won only one of their past seven games but I don't think it is a crisis situation because the players have given everything and, if they play at the same level as against Newcastle and Chelsea, their Premier League results will improve and they will get out of their Champions League group.
"The fans have to accept any manager in charge of this United team would probably have been beaten by Juventus, so Mourinho just needs to be allowed to get on with it - starting against Everton on Sunday."
The Red Devils will look to turn their fortunes around on Sunday when they host the Toffees in Premier League action.